Liberal Democrat MP Ben Maguire has urged the Chancellor to consider raising the income tax threshold for individuals over State Pension age, arguing that current frozen thresholds could lead to increased tax burdens for retirees. Treasury Minister James Murray responded by emphasizing the government's commitment to keeping taxes low for pensioners while maintaining fiscal responsibility, but avoided directly addressing the proposal.
Liberal Democrat MP Ben Maguire has called on Chancellor Rachel Reeves to evaluate the potential benefits of raising the tax allowance for individuals over State Pension age to £15,000. Currently, the Personal Allowance remains frozen at £12,570 until the start of the 2028/29 financial year. In a written response last Friday, Treasury Minister James Murray MP emphasized the UK Government's commitment to keeping taxes low for pensioners while ensuring fiscal responsibility.
However, he did not directly address the proposal for an assessment on increasing the income tax threshold. Mr. Murray stated: 'The Government is committed to keeping taxes as low as possible for pensioners while ensuring fiscal responsibility, which is why it is not extending the freeze on personal tax thresholds that was implemented by the previous government, and is instead allowing them to rise with inflation from April 2028.' He added: 'At Autumn Budget, the Government announced that the basic and new State Pension will increase by 4.1 per cent from April 2025. This means those on a full new State Pension will receive an additional £470 a year.' The full New State Pension currently stands at £11,502 in the 2024/25 tax year and will rise to £11,973 in 2025/26. This leaves only £1,068 in the current year before the tax threshold is exceeded and £597 in 2025/26.The crucial point to note is that someone receiving the full New State Pension will not pay income tax, but older individuals with additional income from employment, private or workplace pensions, might incur tax liabilities. For most people, this tax would be automatically deducted through PAYE on employment and tax on private pensions. Anyone who doesn't pay tax automatically would receive a tax bill from HMRC the following summer, payable by January in the next year.State Pension News has observed considerable speculation regarding the number of pensioners who will pay tax. Currently, out of the 12.9 million State Pensioners in the UK, nearly 8 million (62%) already pay some tax in retirement, making this a recurring phenomenon. With auto-enrolment in the workplace, now in its 13th year, more individuals will benefit from increased income in retirement and are likely to pay tax, typically deducted from their private pensions. Understanding any tax payable in retirement hinges on the amount of income earned above the threshold – not the total additional income. For instance, if someone has a total annual income of £13,000, they will pay tax on £430, which is the amount exceeding the £12,570 threshold. Those affected would then have to pay HMRC 19 percent of their income above the threshold, which is the starter rate of tax in Scotland (20 percent in England). The DWP will publish the full list of State Pension and benefit uprated payments shortly. So far, they have only confirmed the New and Basic State Pension rates, not additional elements (which are rising by 1.7 percent). To check your own future State Pension payments, utilize the online forecasting tool on GOV.UK.
TAXATION PENSIONS UK GOVERNMENT FISCAL POLICY RETIREMENT INCOME
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